Standing Committee B

Morning

[Sir Nicholas Winterton in the Chair]

Finance Bill

(Except clauses 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and schedules 5, 6, 19 and 25, and any new clauses and schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration.)

Nicholas Winterton: I welcome right hon. and hon. Members to the first sitting of the Finance Bill 2003. I am a tough Chairman and this will be an ordered, constructive and positive Committee. I hope that ways will be found to discuss all the important parts of the Bill, which is important not only to the House but to many people outside.
 I want to make some domestic announcements. Copies of the money and Ways and Means resolutions are available in the Room and Members are encouraged to obtain copies and to study them. 
 There are some red boxes in the Room, perhaps in anticipation of those who aspire to high office. There is one for every Committee member, and no doubt they will wish to collect them in due course. 
 I want to say with every emphasis that I can muster that mobile telephones may be useful electronic devices, but I do not like their sound in this Standing Committee, so I hope that they will all be switched off. 
 I also want to announce, well in advance, a matter that is always stated by the Chairman—it is not my intention, or that of other Chairmen of this Committee, to call starred amendments. 
 I hope that I have made myself clear and that this will be a good Committee. We have a programme motion, whether we like it or not, and I hope that important matters can be debated properly in this Committee, despite those restrictions.

David Wilshire: On a point of order, Sir Nicholas. I noted the words ''a tough Chairman'', so it is sensible to inquire whether gentlemen may remove their jackets. I would not wish to offend you on day one.
 While raising that point of order, could I, through you, Sir Nicholas, inquire of the Paymaster General whether the significance of the red boxes is that they are Labour boxes, or is she celebrating Bristol City football club and its tragic loss to Cardiff this week?

Nicholas Winterton: I cannot speculate on the latter point, but I have no doubt that the Minister will have some feelings about one of her local football clubs.
 On the matter relating to the boxes behind me, I am pleased that we are proceeding with a certain amount of humour. I can only advise the hon. Gentleman that red boxes are slightly cheaper than green boxes, and Parliament is conscious of the cost to the public purse. 
 I am grateful to the hon. Member for Newcastle-under-Lyme (Paul Farrelly) for putting on his jacket. If Members feel uncomfortable as we move to a hotter period of the year and if jackets are hung tidily on the rear of chairs, I am happy for them to be removed at the discretion of Members.

Dawn Primarolo: I beg to move,
That— 
 (1) during proceedings on the Finance Bill the Standing Committee do meet when the House is sitting on Tuesdays and Thursdays at 8.55 am and 2.30 pm, except on Tuesday 3rd June when it shall meet at 10.30 am and at 4.30 pm; 
 (2) the proceedings shall be taken in the order shown in the first column of the following Table, and shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table:— 
 TABLE 
 Proceedings 
 Time for conclusion of proceedings 
 Clauses 2, 3, 6 to 8, 10 to 13 and 15 to 19, Schedule 1, Clauses 20, 21 and 23, Schedule 2, Clauses 24 to 41, 147 and 149 to 151, Schedule 26, Clauses 152 to 154, Schedule 27, Clauses 155 and 163 to 166, Schedule 30, Clause 167, Schedule 31, Clause 168, Schedule 32, Clause 169, Schedule 33, Clause 170, Schedule 34, Clauses 171 and 172, Schedule 35, Clause 173, Schedules 21 and 22 
 5.00 pm on Thursday 22nd May 
 Clauses 43 to 49, Schedule 3, Clause 50, Schedule 4, Clauses 51 to 55 and 58 to 62, Schedule 7, Clauses 63 to 68, Schedule 8, Clauses 69 and 70, Schedule 9, Clauses 71 to 78, Schedule 10, Clause 79, Schedule 11, Clauses 80 to 91, Schedule 12, Clauses 92 and 93, Schedule 13, Clauses 94 to 99, Schedule 14, Clauses 100 to 104, Schedule 15, Clause 105, Schedule 16, Clauses 106 to 115, Schedule 17, Clauses 116 to 123, Schedule 18, Clause 125, Schedule 20, Clauses 126 to 129, 136, 137 and 140, Schedule 23, Clauses 141 and 142, Schedule 24, Clauses 143 to 146 
 11.25 am on Tuesday 10th June 
 Clauses 156 to 158, Schedule 28, Clauses 159 to 162, Schedule 29, Clauses 174 and 175, Schedule 36, Clauses 176 and 177, Schedule 37, Clauses 178 to 180, Schedule 38, Clause 181, Schedule 39, Clauses 182, 183 and 200, Clauses 185 to 192, Schedule 40, Clause 193, Schedule 41, Clauses 194 to 197, Schedule 42, Clauses 198, 199 and 201 to 213, Schedule 43, Clause 214, new Clauses, new Schedules, any remaining proceedings on the Bill. 
 5.00 pm on Thursday 12th June 
 Good morning, Sir Nicholas. On behalf of the Committee, may I welcome you and Mr. McWilliam, your co-Chair, to the proceedings of the Finance Bill? I am sure that I speak for the whole Committee in saying that we welcome your expertise and know that you will keep us on the straight and narrow while not allowing us, however much we may be tempted, to stray on to matters that are not strictly relevant. I know that you will have a light but firm touch—I hope that that is not a contradiction in terms—so long as the Committee conforms to the required conduct. 
 The Economic Secretary and I will be doing our best to assist the Committee in the progress of business. 
 I welcome the hon. Member for Arundel and South Downs (Mr. Flight) to the Committee, as shadow Chief Secretary to the Treasury and as the leader of Her Majesty's Opposition in this Committee. He has participated in three previous Finance Bills. He has 
 always conducted business in a good-humoured but none the less incisive way while leading the Opposition team. His wealth of knowledge and experience, along with that of his hon. Friends, bodes well for the Committee and the debate. 
 I welcome the right hon. Member for Fylde (Mr. Jack), who is an experienced member of the Committee having been Financial Secretary to the Treasury under the previous Government. He has served on all the Finance Bills since 1997. He, too, brings great knowledge and understanding to our proceedings. I know that he will participate fully by challenging Ministers in his distinct and effective way. 
 I welcome the hon. Members for Eddisbury (Mr. O'Brien) and for Hertford and Stortford (Mr. Prisk). This is their first Finance Bill as Opposition spokespersons, and I hope that they enjoy their new posts and find the Finance Bill challenging, edifying and enjoyable. 
 I welcome the many talented and able Government Members to the Committee. I am reasonably confident that they will provide the Government with appropriate support. 
 I welcome for the first time to the Finance Bill the hon. Member for Yeovil (Mr. Laws), who is leading for the Liberal Democrats. The hon. Member for Torridge and West Devon (Mr. Burnett), who is a veteran of previous Finance Bills, will also bring his great knowledge to our proceedings. 
 I welcome Hansard, the Officers of the House, the Clerk and the police, who will do everything in their power to ensure that we make progress in an orderly fashion and that our proceedings are properly recorded. 
 The Finance Bill in Committee is an enjoyable experience, but perhaps that is something that Members will want to reflect on at the end of the process. Notwithstanding the fact that there will need to be detailed and sometimes controversial debates, the hallmark of these Committees has always been that they have been conducted in a proper and, where appropriate, good-humoured but none the less meticulous fashion. 
 The motion sets out the clauses and schedules to be considered in the Standing Committee. Clauses will be taken together with their related schedules to facilitate debate. The programming of the Committee provides certainty about the time at which clauses will be taken, to help all those involved in the process to prepare for debates and to support our wish for the Finance Bill to be considered properly. For example, hon. Members will see that the clauses on modernised tax, stamp duty and land tax have been specifically scheduled for the week following the Whitsun recess. The date on which the Committee will report its business to the House is given in the motion. The Government will make no attempt to curtail discussion on clauses. I should say at the outset that the Programming Sub-Committee will be able to reconsider the number of sittings timetabled, should it decide that that is necessary. 
 My hon. Friend the Economic Secretary and I look forward to the coming weeks and to being able to 
 respond in detail to the very detailed questions that hon. Members will, quite rightly, want to put to us on the contents of this year's Finance Bill.

Howard Flight: Sir Nicholas, may I warmly welcome you to the Chair this morning and, in their absence, Mr. McWilliam and Mr. Gale? We all know of your expertise and are glad to hear of the discipline with which you will guide us. It is particularly splendid that we have a Chairman of such gentlemanly and courtly conduct. Thank you very much for chairing us.
 I thank the Paymaster General for her kind remarks. I fear that the drafting of this year's Bill might defeat any incisiveness that I have left, but her comments are greatly appreciated and I return them. I think that this is her ninth Finance Bill, which must be one reason for the mastery with which she has grasped tax law and the operation of the Inland Revenue. As I have commented before, I was first a member of a Government tax consultative committee in the early 1980s, and I have been involved, off and on, with a number of Financial Secretaries and Paymaster Generals. I certainly feel that this Paymaster General has the best grasp of tax law of any whom I have encountered in 20 years. Dare I say that the wicked thought crossed my mind that there would be a highly remunerated job for her as a tax adviser in the City of London? 
 The Opposition are also pleased to debate the Bill with the Economic Secretary. I believe that the Chief Secretary to the Treasury will be participating as well as all the Committee members. I am honoured to be joined by a first-rate Opposition Front-Bench team, which includes my hon. Friend the Member for Eddisbury, the shadow Paymaster General, and my hon. Friend the Member for Hertford and Stortford, the shadow Financial Secretary. As the Paymaster General commented, we have the services of the right hon. Member for Fylde, who has enormous expertise that he gained in government and from a pure intellectual fascination with the challenges of tax law. We also have an outstanding team in my hon. Friends the Members for Tatton (Mr. Osborne), for Huntingdon (Mr. Djanogly) and for Billericay (Mr. Baron), who bring with them enormous legal and financial expertise. 
 I add my welcome to the Liberal Democrat Front-Bench team and recognise the expertise that the hon. Members for Yeovil and for Torridge and West Devon bring to the Committee. Dare I say that, given their views on such important matters as tax, they should be part of the Conservative team? I also welcome the Whips. It is a tireless and thankless task that they do, which is carried out by extremely decent chaps—[Interruption.] Oh, we have a lady Whip as well—they are decent chaps and chapesses. I welcome the Clerk, the police and the officers. I thank the Clerk for the help that he provides the Opposition with the tabling of amendments. 
 I have already made it clear that the Opposition oppose the timetable, particularly the knives within it. We feel strongly that 14 sittings are not sufficient, and the knives could cause a lot of problems. During the past three years we have shown that we can behave in 
 a thoroughly responsible manner when dealing with the Finance Bill in Committee, and we have not wasted time. We feel that it is unfortunate that the Government have chosen to over-organise matters this year. It has attracted some criticism from professionals outside the House. 
 The Bill is complex. It contains 180 pages of new drafting relating to stamp duty and the new laws for employee share schemes. The stamp duty arrangements in particular—the new short lease arrangements—could add dramatically to the costs of small businesses. As I said on the Floor of the House, the rewriting of tax law relating to enterprise and options has been incomprehensibly drafted, and it runs the risk of leaving many share schemes in a considerable mess if there is inadequate scrutiny. The real risk is that poor drafting will pass into law if there is not the opportunity for further consideration in the other place. 
 Dare I quote some of the comments of outside professionals? The Law Society has commented that a significant proportion of the Bill 
''consists of complex legislation which had not been previously published. This might not have been a concern, had agreed policy intentions been translated into clearly worded drafting. Regrettably, this appears not to be the case in a number of areas. These failings are compounded by the extremely limited time available for consideration both by professionals and by Parliament and the poor quality of many of the Explanatory Notes.''
 The Institute of Chartered Accountants has similarly commented that it is 
''concerned at the length and complexity of this Finance Bill. Many of the clauses were not made available for earlier consultation''.
 Particularly in the area of VAT clauses and the stamp duty land tax, it is concerned about the conflict with EC law and human rights legislation. 
 The Chartered Institute of Taxation has made similar comments. It feels that 
''much of the legislation has not been the subject of consultation, eg the legislation on employee shares . . . This is very much to be regretted, and is against the Code of Conduct on Consultation. Whilst we can understand that consultation is not easy where anti-avoidance measures are concerned''—
 as the Paymaster General said—some 75 pages of complex legislation are likely to receive inadequate scrutiny. 
 Therefore, we are opposed to the timetabling motion and will be obliged to vote against it. That is a great pity. Notwithstanding that, I am sure that the Committee's proceedings will, as ever, be conducted in good humour. Opposition Members will do our best to ensure that, in the limited and inadequate time available, scrutiny of the Bill is as good as possible.

David Wilshire: I want to make one or two comments for the avoidance of doubt. I suspect that there will be occasions when we disagree on certain matters, probably about programming. So that we do not have an unnecessary debate, may I make it clear that the official Opposition opposed this motion from the beginning? Indeed, in the Programming Sub-
 Committee there were votes against it. Therefore, we do not need to have that argument.
 When such important legislation is guillotined, there is a danger that spending time on matters that the Government believe to be less important is considered to be wasting time. I believe that it is the duty of Her Majesty's Opposition to deal with everything that matters to somebody. Just because a few clauses are less important to the Government, it does not mean that someone out there in the British economy is not deeply affected. Therefore, I hope that we will not get locked into arguments such as ''You shouldn't be using time on that, because this is far more important''. We will not be apologetic about addressing matters that do not bother the Government but which concern people outside the House. 
 Similarly, there is a real risk—this is not an attempt to filibuster—that certain matters will remain unconsidered. The Paymaster General said in her opening remarks that there is no attempt to curtail debate. I am afraid that there is, because this is a programme motion, and programme motions curtail debate. She said that the number of sittings is a matter for discussion, but ultimately it is not, because the House has fixed an out date. Although it may be possible for the usual channels to juggle things within that, there is a fixed out date, and we would have to go back to the House, not the Programming Sub-Committee, to change that. 
 Therefore, although I welcome the Paymaster General's conciliatory approach when she says that she does not wish to curtail debate and has an open mind on the number of sittings, which sounds good, it is not accurate. There is a programme motion; we oppose that programme motion. There is some flexibility, but not much. As the other place does not consider the Bill, there is a real danger on this occasion that matters will pass into law that have not been scrutinised. I am not sure why I am trying to save the Government from falling flat on their face, but there is a real risk that, if some of this stuff is not considered properly, they will drop the most almighty clanger and do serious damage to the British economy. 
 That is the general sense in which I approach the motion. There is just one matter that may be of interest to my colleagues and perhaps—dare I say it—to Labour Members. The Programming Sub-Committee, in its wisdom, stated that on the day after the Whitsun recess the Committee will meet at half-past 10 in the morning. I put it on record again that I, on behalf of my hon. Friends, am very willing to do some negotiating, so that if the majority of members of the Committee are keen not to be here at half-past 10 on that morning, provided that we can find an alternative time, the door is wide open on the Conservative side to reach an arrangement that enables people to enjoy a slightly longer holiday. 
Several hon. Members rose—

Nicholas Winterton: Order. May I help the Committee? We have about 10 minutes left for this debate. I hope that those whom I call will bear that in mind, so that all those who wish to participate can do so.

David Laws: Thank you, Sir Nicholas. I am sure that that is good guidance for all our proceedings. I wish to begin by welcoming you to the Chair and by joining the Paymaster General and the shadow Chief Secretary in saying that we are confident that you will be extremely effective and robust, as you always are.
 I thank the Paymaster General for her welcome to the Committee and appreciate the large amount of experience that she brings to the job. We hope that the shadow Chief Secretary's suggestion that she might at some stage be poached for some highly paid job will not turn out to be the case. I also welcome the Economic Secretary who has already engaged in robust debate, not least with me, on various subjects. We look forward to his contributions as well as those of all the Government Members who are, no doubt, looking forward with enthusiasm to participating in our proceedings during the next few weeks. 
 I also thank the Conservative shadow Chief Secretary for his comments. He underlined the fact that there is some common ground between my party and his on some aspects of tax, and we certainly have three economic liberals among the Liberal Democrats on the Committee. Unfortunately, I cannot take up his generous offer to join the Conservative party. I am far too ambitious for that, as are my hon. Friends the Members for North Norfolk (Norman Lamb) and for Torridge and West Devon, who are limbering up even as I speak to join the detailed debates that we will have in the next few weeks. 
 I also pay tribute to some of the other members of the Committee, including the right hon. Member for Fylde, who will help to enlighten us and bring to the Committee a depth of experience from his time at the Treasury. On your earlier comments, Sir Nicholas, about red boxes, I note that some Conservative Members—for example, the hon. Member for Tatton—have betrayed their intentions for the future in seizing control of the red boxes at this very early stage. 
 I also welcome the hon. Member for East Carmarthen and Dinefwr (Adam Price), who will draw to our attention the interests of Scotland when they come up in our proceedings. [Laughter.] And Wales—I have betrayed the fact that geography was not one of my strong points at school. Fortunately, I shall not have to deal with that subject on this Committee. 
 I wish briefly to thank the tax advisory groups who do much to bring those of us who do not have the experience of other Members up to the required standard on aspects of the Finance Bill—if not geography—to enable us to participate more meaningfully in the proceedings. The representations of the tax law committee of the Law Society, the taxation faculty at the Institute of Indirect Taxation and the Chartered Institute of Taxation were immensely useful, not least to those of us in the Opposition. 
 I hope that we will be able to use the proceedings to focus on the substantive issues that are still to be debated while, as the Conservative Whip, the hon. 
 Member for Spelthorne (Mr. Wilshire), mentioned, not ignoring matters that are of interest to different groups in the economy. I shall now take your guidance, Sir Nicholas, on the time available and conclude my comments.

Michael Jack: Sir Nicholas, it is a great pleasure to serve under your chairmanship. You follow in the proud tradition of north-west Members who have chaired this Committee, and the same thing could be said of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), who was equally robust in her chairmanship of the Committee some years ago. I am also delighted to note that more than 20 per cent. of members of the Committee come from seats in the north-west of England. I have no doubt that that will bring a resolute and down-to-earth approach to our proceedings.
 I thank hon. Members for their generous comments about what they hope will be my contribution. The Paymaster General has shown a very good grasp of tax matters over the years. She served an honourable apprenticeship on the Opposition side of the Committee and has distinguished herself in her two Treasury posts. Like me, she will realise that at the heart of one's contribution is the quality of the briefing and information that one gets, either from experts or, in her case, from Treasury and Inland Revenue officials. I am but the humble creature of the advice that I receive, but I will do my best to put it to good effect. 
 I hope that in trying to scrutinise that which we are able to scrutinise Ministers will try to explain why they want to do what they want to do, what its economic effects will be, and, importantly, whether the Inland Revenue will have the resources to cope with the implementation of the measures. Only this morning, I awoke to the news that yet another problem has beset the Inland Revenue over matters connected with pension contributions and national insurance. Now is not the time to debate those issues, but they underscore the fact that for the Revenue implementation requires resources and knowledge. 
 I, too, am disappointed that the programme motion includes knives that bite. The one thing that has always typified the Finance Bill has been the agreement across both sides of the Committee that it will be considered in a timely fashion. Perhaps part of the reason why we have such a motion before us is that, for as yet no publicly-given reason, the Budget was something like a month late. I welcome the Paymaster General's observation about the possibility of flexibility on the number of sittings that we may have, but, as my hon. Friend the Member for Spelthorne told us, there is ultimately an inescapable barrier. 
 May I conclude by congratulating my hon. Friends the Members for Arundel and South Downs and for Eddisbury on their excellent performances on the Floor of the House on the Bill? I am overwhelmed by the number of files that my hon. Friend the Member for Eddisbury has already accumulated. On that basis, I am sure that we will have an extremely well informed debate on the clauses that we have time to consider in detail.

Mark Prisk: May I say how delighted I am to serve under your chairmanship, Sir Nicholas? I am aware of the short time available to me. As this is my first Finance Bill, the prospect of 447 pages, 214 clauses and 43 schedules seems remarkable and daunting. In facing the challenge, I draw some comfort and inspiration from the painting behind you, Sir Nicholas. It is entitled ''Alfred inciting the Saxons to prevent the landing of the Danes.''

George Osborne: So, my hon. Friend is Alfred.

Mark Prisk: I sincerely hope so.
 May I draw the Committee's attention to the impact that the programme will have on the stamp duty land tax? The tax is new and therefore needs particular consideration and scrutiny. There are 82 clauses and 17 schedules related to it. As such, the programme motion compounds a particular problem regarding the tax. Many outside experts believe that the proposal as it is currently drafted is incomplete. For example, sale and leasebacks, which are a very complicated aspect, have been left to secondary legislation. 
 I am principally concerned not just because we need time to consider the unintended consequences, but because there are many outside experts in taxation, law and property who want to contribute to the process. The programme motion is too short and inconsiderate. It will not allow us to examine the tax, never mind the Bill, in the thorough and professional manner that people outside the House would expect.

Nicholas Winterton: So far so good. A very pleasant atmosphere prevails. I trust that that will continue.
 Question put:—
The Committee divided: Ayes 18, Noes 10.

Question accordingly agreed to. 
 Resolved, 
That— 
 (1) during proceedings on the Finance Bill the Standing Committee do meet when the House is sitting on Tuesdays and Thursdays at 8.55 am and 2.30 pm, except on Tuesday 3rd June when it shall meet at 10.30 am and at 4.30 pm; 
 (2) the proceedings shall be taken in the order shown in the first column of the following Table, and shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table:— 
 TABLE 
 Proceedings 
 Time for conclusion of proceedings 
 Clauses 2, 3, 6 to 8, 10 to 13 and 15 to 19, Schedule 1, Clauses 20, 21 and 23, Schedule 2, Clauses 24 to 41, 147 and 149 to 151, Schedule 26, Clauses 152 to 154, Schedule 27, Clauses 155 and 163 to 166, Schedule 30, Clause 167, Schedule 31, Clause 168, Schedule 32, Clause 169, Schedule 33, Clause 170, Schedule 34, Clauses 171 and 172, Schedule 35, Clause 173, Schedules 21 and 22 
 5.00 pm on Thursday 22nd May 
 Clauses 43 to 49, Schedule 3, Clause 50, Schedule 4, Clauses 51 to 55 and 58 to 62, Schedule 7, Clauses 63 to 68, Schedule 8, Clauses 69 and 70, Schedule 9, Clauses 71 to 78, Schedule 10, Clause 79, Schedule 11, Clauses 80 to 91, Schedule 12, Clauses 92 and 93, Schedule 13, Clauses 94 to 99, Schedule 14, Clauses 100 to 104, Schedule 15, Clause 105, Schedule 16, Clauses 106 to 115, Schedule 17, Clauses 116 to 123, Schedule 18, Clause 125, Schedule 20, Clauses 126 to 129, 136, 137 and 140, Schedule 23, Clauses 141 and 142, Schedule 24, Clauses 143 to 146 
 11.25 am on Tuesday 10th June 
 Clauses 156 to 158, Schedule 28, Clauses 159 to 162, Schedule 29, Clauses 174 and 175, Schedule 36, Clauses 176 and 177, Schedule 37, Clauses 178 to 180, Schedule 38, Clause 181, Schedule 39, Clauses 182, 183 and 200, Clauses 185 to 192, Schedule 40, Clause 193, Schedule 41, Clauses 194 to 197, Schedule 42, Clauses 198, 199 and 201 to 213, Schedule 43, Clause 214, new Clauses, new Schedules, any remaining proceedings on the Bill. 
 5.00 pm on Thursday 12th June

Clause 2 - Rate of duty on beer

Question proposed, That the clause stand part of the Bill.

John Healey: I look forward to serving on the Committee under your chairmanship, Sir Nicholas. You said that you were determined that it will be an ordered, structured and positive Committee and that every effort will be made to ensure that important matters are properly debated. My right hon. Friend the Paymaster General and I share your determination.
 The right hon. Member for Fylde noted the number of Committee members from the north-west. As I look down the list, it strikes me that almost one in five of us are from Yorkshire, which will ensure a tough, gritty approach. It is probably appropriate that the first clause that we are to discuss concerns beer duty. 
 The clause increases the rate of excise duty charged on beer by 2.8 per cent., in line with general inflation. Excise duty and value added tax on alcohol provide a crucial £12.5 billion to invest in essential public services such as schools, hospitals and transport and in tackling crime. Beer accounts for more than 40 per cent. of alcohol duty receipts. This inflation-only increase in duty and VAT, which is equivalent to around a penny a pint, is necessary to maintain an important source of revenue. I remind the Committee that that modest increase, which is a freeze in real terms, comes after actual freezes in beer duty in three of the previous four Budgets. Since coming to power in 1997, this Government, unlike the last, have made no real terms increases in beer duty. 
 Some hon. Members may say that any increases in duty rates, even an inflation-only increase, will fuel the smuggling of beer and wine, the duty on which is increased in line with inflation in clause 3. The Government are absolutely committed to tough action to protect the industry against the effects of illegal smuggling and, as we announced in the pre-Budget report, Customs and Excise have continued to have a significant impact on cross-channel smuggling. The modest duty increases take place against a background, in 2002, of a 22 per cent. reduction in revenue evaded through beer smuggling and a halving in revenue evaded through smuggling of wine and spirits for the second year in succession. 
 I am aware of the pressures on brewers and the pub industry. They play an important part in our economy, our heritage and, for some of us, our leisure time. This modest inflation-only increase in beer duty recognises their concerns but, at the same time, maintains an important stream of revenue that is necessary to maintain our commitment to improving public services.

Stephen O'Brien: I, too, welcome you to the Chair, Sir Nicholas, and your colleagues, Mr. McWilliam and Mr. Gale. As one of the proliferation of Members from the north-west, and not least as a Cheshire Member, I find it a particular privilege to serve under your chairmanship.
 I thank the Economic Secretary for his contribution in the Committee of the whole House, although we were disappointed that he was not minded to accept any of our amendments. The issues raised were given a fair time for debate, but deep regret was felt on the Opposition Benches, and by many professional advisers and those who take an interest in the City, that the operation of a knife at the end of the first day meant that we were not able to debate the important area of stamp duty. That was a serious omission, and stamp tax was a real victim of the draconian timetabling procedure under which we have to suffer. Having put those comments on the record, I take this opportunity—as it has not been mentioned so far—to wish the Financial Secretary to the Treasury well. I know that she is quite rightly on maternity leave, and we all hope that it proceeds satisfactorily so that she will be able to add to her happy, and already somewhat numerous, family. 
 Clause 2, as the Economic Secretary has said, provides for an increase in the rates of excise duty charged on beer in line with inflation at 2.8 per cent., which came into effect from midnight on 30 April, on the assumptions that the Committee feels minded to support that proposal and that it will receive the backing and support of the House in due course. Although that is a very important duty, it would be right, in taking account of the proper admonitions that you hope we will be mindful of and abide by, Sir Nicholas, to note that the arguments that we raised in some detail in relation to tobacco products, and the other issues that came up during the new clause debate on the Floor of the House, apply equally to smuggling and cross-border issues relating to beer. 
 I do not think that it would be proper use of the Committee's time to delve into those issues one more 
 time. We have gauged the Government's reaction to what I hope were seen to be considered and responsible proposals, which were an attempt to tackle a genuine issue that affects users, not least, and corner shop owners and others, whether we are talking about tobacco or beer or other drink. Finding where elasticity in approach should fall is an increasing problem. 
 We all wish to curb smuggling. There is of course the phenomenon of cross-border shopping. The reality of that activity for personal consumption has been recognised, and that has to be considered part of the principle of freedom to shop. The House has seen personal allowances for such shopping raised, but there is concern that the duties that continue to be applied to such products are not bringing about the Government's desired objective by curbing smuggling to the necessary degree. 
 I shall not seek to spend particular time on that issue, given that we have debated tobacco, especially the proposal for a comparative control group that could test how the Government's strategy is working in relation to smuggling, how we can link it to pricing and differentials to tackle smuggling, and how it connects to the attack on corner shops that the increase in cross-border shopping represents. 
 I seek the Government's assurance that they will give detailed consideration to the impact of inflationary duty increases on smuggling and cross-border shopping. We are concerned that much information behind the advice given to Treasury Ministers is not being made broadly available, and not to those of us who have to scrutinise the Government's policy. There is a genuine need to protect the revenue raised from those products. I look to the Minister for those assurances so that we may have a detailed commitment to a programme of report on the elasticity of prices, duty and differentials between marketplaces. That would be particularly helpful. 
 It would also be helpful to ensure that the Government's assessment includes a proper analysis of the effect of duty increases on consumption, particularly in relation to tobacco. Let us not forget alcohol, too, which, while a pleasure in moderation, can result in a serious and damaging condition for some people. The health issue must genuinely be borne in mind with beer, as with tobacco products, about which there has been much fuller discussion. 
 I would be grateful if the Economic Secretary would share with us any detailed analysis that has been done or ensure that such analysis will be done. I would like to know about any commitment to a continuing programme that supports the fairness of the decision to increase duty on beer and wine, the effect on consumption—taking into account commercial and health issues—and, above all, where the elasticity factors range for each product in respect of smuggling and cross-border shopping.

John Baron: Welcome to the Chair, Sir Nicholas. I shall keep my comments brief, as I appreciate that time is short.
 In spite of all the Economic Secretary's comments about being fair to the domestic brewing industry and the consumer, I put it to him that beer duty is much higher on this side of the English channel than it is on the continent. That is unfair and wrong for several reasons. There is a great deal of talk about how Customs and Excise is coping and doing a great job on smuggling, but the increase in the price differential between this country and the continent encourages smuggling. Unless we can really get to grips with smuggling, as was pointed out on the Floor of the House yesterday in respect of tobacco smuggling, the increasing price differential will significantly harm our domestic industry. 
 The higher duty is also unfair on the 15 million beer drinkers in this country. I must declare an interest because I am one of them, in moderation. I ask the Economic Secretary what justification he has for the ever-increasing price differential on beer between this country and the continent. Will the Treasury put in place some long-term strategy or policy on taxation? At present, we seem to live hand to mouth, from year to year, never quite knowing where we are with taxation on alcohol. It would help the Committee, and the country as a whole, if we had some better indication of what might come in the years ahead. It would certainly help our domestic brewing industry to make investment plans for the future.

Jonathan Djanogly: It is important to say something about real ale. The industry is not happy with the proposed rise and has hit out against the penny increase. Mike Benner, head of campaigns and communications for the big consumer group, the Campaign for Real Ale, stated:
''We understand that the Government needs to raise extra cash in this Budget, but increasing beer duty is a flawed strategy. As people only have so much cash to spend in pubs and bars, increasing duty reduces average consumption which in turn reduces revenues from beer duty. This increase is a blow for consumers after freezes in the last two budgets indicated a more sensible approach from the Government.''
 That ties in with what my hon. Friend the Member for Billericay said. It is all very well to crack down on smuggling—indeed, we must do so—but at the same time we must put the price of beer in this country in the context of the price in the rest of Europe. Most people do not have to indulge in smuggling. They can legally go to the continent and purchase alcohol at a rate that is vastly reduced in comparison with rates in this country. That is why I fully support the proposal of my hon. Friend the Member for Eddisbury, who said that it would be helpful if the Government were to provide comparative figures for other European countries so that we could see what we were talking about. 
 Yesterday, on the Floor of the House, we discussed the duty on Scotch whisky. As part of that debate, comparisons were made with the duty on beer and wine. I remember the Economic Secretary saying that he was happy that the duty had been kept constant for a number of years and that it would have been bad for 
 whisky if there had been increases over those same years. However, he did not go on to give a rationale for the Government's strategy of freezing duty on whisky, other than to imply that that had been done on a year-by-year assessment basis. 
 Comments made yesterday are relevant to the debate. It would help the industry if some sort of strategy were put in place, so that it could be debated as an issue and put in an overall context. Has the Government's policy over recent years been to equalise the duty on whisky vis-à-vis the duty on beer and wine? The Economic Secretary never addressed that in the debate yesterday, so it would be helpful if he addressed it today.

Michael Jack: I want to follow the line of my hon. Friend the Member for Huntingdon and take the Economic Secretary through one or two arguments on which I would be grateful for his comments. Every time the Government of the day return to the hackneyed old favourite of raising money by revalorisation—on this occasion, of the duty on beer—we hit a problem. I had not realised that one of the effects on the product itself was a potential downgrading of some of our better known beers. I declare an interest. I am principally a wine drinker, but occasionally I like to go into The Taps in Lytham, which is an excellent community pub, and enjoy a pint of Boddingtons beer. I had thought that it was a good north-west brew of traditional style, but I discovered recently that instead of containing good English-grown hops, the beer is being reformulated to contain hop oil. Those who like their beer brewed the traditional way will reflect on the fact that a range of hops and the contribution that whole hops make to the flavour of beer will be denied them. What many traditional beer drinkers would think of as an inferior product will be the one that is available.
 Brewing and the retailing of beer are under considerable pressure on the margin and returns that they give, so manufacturers reformulate the product to try to sustain their financial returns against a background of rising prices. That background is occasioned by the clause. I am concerned because there are potential knock-on effects on agriculture. If brewers adjust the formulation, in the light of the rising price of the product, the net result will be that hops grown in the United Kingdom will suffer. The Government have made great play of their policies on the importance of rural Britain and sustainability. The inch-by-inch increase of the price of beer occasioned by the clause acts against the Government's professed interest in sustaining rural Britain and its communities. 
 That brings us back to where we started: namely, in the pub. The Countryside Agency's recent report on rural Britain places strong emphasis on the important role that the pub plays as the centre of rural communities. However, the inexorable rise in the price of beer has its effect on depressing the viability of not just rural pubs, but pubs in general. There is a circularity to the argument. The more the Government carry on increasing the price of beer, the more they affect not only the returns to the landlord, but also the quality of the product. 
 The Economic Secretary did not comment on another aspect. The increase in the price of beer is not the same as the increase in the price of duty. Retailers of beer will take a retail margin on the extra tax, so the percentage increase that he mentioned will be multiplied by the retail margin, especially in the case of supermarkets, off-licences and other purveyors of alcoholic drinks. That raises the question of how much analysis the Treasury has undertaken of the knock-on effect of what seems on the face of it a modest proposal. Can the Economic Secretary enlighten the Committee on what will happen? 
 Beer is deemed a natural beverage. Many would ascribe to it health-giving properties. I contrast that with many of the comments made on, for example, drinks available to children—fizzy pop, to give the generic term—which are high in sugar content. They can bring all kinds of problems, such as the onset of type 2 diabetes, which results in a cost to the national health service. However, such drinks have so far remained untouched by the Government in terms of taxation. It proves an interesting contrast that a natural beverage, beer, is continually under price pressure from the Government while other beverages that may have health disadvantages remain untouched. 
Rob Marris (Wolverhampton, South-West) rose—

Nicholas Winterton: I call the hon. Member for Wolverhampton, South-West (Rob Marris), who, I believe, represents the home of Wolverhampton and Dudley breweries.

Rob Marris: You almost took the words out of my mouth, Sir Nicholas, and may I say what a remarkable pleasure it is to serve under your chairmanship? I should declare an interest that is not registrable: Banks's, the Wolverhampton and Dudley breweries, which is headquartered in my constituency, is the landlord of my constituency office—at an open-market rent, I hasten to add. It makes the excellent Banks's mild bitter as well as Banks's bitter, as I am sure that all hon. Members know. It used to be available in the Strangers Bar.
 Banks's is the largest independent brewer in the United Kingdom and is responsible for some 1,600 public houses. It is a major brewer, and I can briefly tell my hon. Friend the Minister that I have quite close contact with Banks's, not only because my office is its tenant, but because it is literally a stone's throw from the brewery that is its headquarters. I saw Ralph Findlay, the chief executive, fairly recently—before the Budget—and discussed many things with him, including the Licensing Bill. I cannot recall that I have had any representation from Banks's brewery—the largest independent brewery in the UK—on the rise in the rate of excise on beer proposed in the Budget.

John Healey: I welcome the strong support that a number of Members have given for particular local brewers and breweries in their constituencies. It reinforces the quality of insight brought to proceedings in this House and in Committee when we can make such direct links between our experience of local interests and more general national policy
 issues. I particularly welcome the comments of my hon. Friend the Member for Wolverhampton, South-West.
 I have to say to the right hon. Member for Fylde that although I drink Boddingtons, I do not submit it to the chemical analysis to which his comments treated us. I found them especially interesting.

Michael Jack: The ale in The Taps pub that I mentioned is brewed with hops. I should be delighted to share a pint of that fine brew with the Economic Secretary.

John Healey: I look forward to that opportunity, although a visit to Fylde is not in my diary at present.
 The right hon. Gentleman tried to take the Government to task for adding duty pressures to the state of the brewing and pub industries. I remind him that he served in the Administrations between 1979 and 1997, which raised beer duties by more than the rate of inflation in nine out of those 18 years. In introducing the clause, I acknowledged the pressure on the brewing industry and pubs. That is one reason why we have introduced the small breweries relief scheme, which I know that he recognises as being particularly valuable to small brewers. For three of the past four years, we froze beer duty. This year, we propose an inflation-only freeze on beer duty—in other words, a real terms freeze. 
 The hon. Member for Billericay cited alcohol duty as an unfairness in the UK tax system. I do not know whether the hon. Member for Spelthorne pricked up his ears at that, because the hon. Member for Billericay may be emerging as a European tax harmoniser. Reducing alcohol duty to the French level would be prohibitively expensive because it would cost more than £5 billion in lost excise and VAT, which would be broadly equivalent to a 1.5 per cent. increase in VAT across the board or a 2 per cent. rise in the basic rate of income tax. 
 It is important not to examine excise duty and taxation in isolation. A large proportion of cross-border shopping for alcohol by British people is done in Belgium, the Netherlands and France, and it is true that those countries generally have lower rates of alcohol excise duty than Britain does. Each of those countries, however, has a higher rate of VAT and a higher rate of corporation tax than Britain has. The Organisation for Economic Co-operation and Development has shown that the UK is still a relatively lightly taxed economy. We have one of the lowest total tax burdens in the EU, and it is far lower than the EU average.

John Baron: Although I accept the Minister's point about the possible loss of revenue if taxes were harmonised across the continent, tobacco smuggling has cost the Treasury £15 billion since 1997. Beer smuggling and alcohol smuggling have also cost sizeable sums of money. To argue that we cannot reduce taxes because we would lose revenue is to examine the problem the wrong way. We should concentrate on stopping smuggling, which would be a revenue earner for the Treasury. That would allow us to reduce taxes on alcohol. The tax on alcohol in Britain is much higher than it is on the continent, which is grossly unfair.

John Healey: The hon. Gentleman jumped in prematurely and repeated his earlier remarks. He said that we should get to grips with smuggling. In the last year—I also said this earlier—Customs and Excise has managed to cut the beer duty lost to cross-channel smuggling by more than one fifth and has reduced the loss of duty on wine by a half.
 The hon. Member for Eddisbury also discussed curbing smuggling, which we are doing. I shall address the two points on which he specifically sought reassurance. We are monitoring the impact of smuggling on industry, the market, consumers and Government revenues. In the Committee of the whole House, we discussed the need for better data and better analysis to inform better policy debates and better policy decisions, and I shall repeat my remarks in Committee. We are currently completing work on improving the model that we use to analyse demand and elasticity in the alcohol market. In particular, we are improving it to take account of the distinction between on-trade and off-trade beer. With the completion of the single market, we will have better data to analyse and track cross-border shopping.

David Laws: When the model that the Economic Secretary said the Treasury is refining is completed, will he contemplate making it available to the outside world and the private sector?

John Healey: The hon. Gentleman may have missed my detailed explanation yesterday when I said that interaction and data on demand, elasticity and the new factors will be set out in a Government economic service working paper. We aim to publish that shortly, and I am confident that it will help to inform our future debates.

Stephen O'Brien: I have noted what the Economic Secretary said and will pick up any points when we come to the next clause, because the same will apply.
 May I take the hon. Gentleman back to a comment that he prayed in aid about the relative position of tax in other countries? I am sure that he will recall that at paragraph C60 on page 261 of the Red Book chart C3 shows the tax-GDP ratio. For the record and given that the Economic Secretary referred to it, it is proper to draw the Committee's attention to that chart. Committee members can refresh their memories by obtaining a copy from the Vote Office. The Government's own document shows that the percentage of tax is projected to escalate phenomenally to 38.5 per cent. during the period to 2008–09 from the current position which they claim is around 36 per cent. The trend is looking very unfavourable.

John Healey: I made the point clearly that the figures from the independent Organisation for Economic Co-operation and Development show that Britain's economy is one of the most lightly taxed in the European Community. As I draw my comments to a conclusion, I trust that that answers the points that have been put to me and I hope that the Committee will approve clause 2.
 Question put and agreed to. 
 Clause 2 ordered to stand part of the Bill.

Clause 3 - Rates of duty on wine and made-wine

Question proposed, That the clause stand part of the Bill.

John Healey: We now turn to the rate of excise duty to be charged on wine and still-made wine. Clause 3 proposes an increase in the rate in line with general inflation of 2.8 per cent. Wine accounted for around 27 per cent. of total alcohol duty receipts, including VAT, of some £7.3 billion in 2002–03. As with beer duty in clause 2, it is an inflation-only increase in duty and VAT and equivalent to around 4p on a bottle of standard table wine. As with clause 2, it is necessary to maintain an important source of revenue to fund essential public services and Government spending. I should remind the Committee again that this modest increase—it is a freeze in real terms—comes after a period of actual freezes in wine duty in three of the previous four Budgets. Since coming to office in 1997, the Government, unlike the previous Conservative Government, have made no real-terms increases in wine duty.
 The UK wine market continues to flourish, and sales of UK duty-paid wine are still increasing. They have increased by 56 per cent. during the past 10 years and remain buoyant with an increase of 8 per cent. during the year to December 2002. The wine share of the UK alcoholic drinks market increased from 21 per cent. in 1993–94 to 29 per cent. in 2001–02. We can look to the wine sector to help to maintain revenue without damaging its prosperity. 
 The arguments about smuggling and cross-border shopping are essentially the same as those made by the hon. Member for Eddisbury at the end of his remarks on clause 2. As I have made clear, the Government are committed to preserving people's rights to shop freely in the single market, but we are also absolutely committed to clamping down on smuggling. I am sensitive to the concerns of wine importers and native wine producers, but the modest increase—as I said, it is a real-terms freeze in wine duty—recognises those concerns while maintaining an important source of revenue to the Exchequer to help it maintain its public spending commitments.

Stephen O'Brien: In relation to clause 3 and the increase in the excise duty charges on still wine and still made-wine, much the same arguments apply as were made on the previous clause. Recognising the precious time of the Committee, I wish to pick up on only a few of the Economic Secretary's remarks on the previous clause that apply equally to this one, rather than going through the same arguments.
 The Economic Secretary helpfully said that the Treasury is compiling studies and analysis and completing a model on elasticity. He noted that it would take account of factors such as industry, market and revenues. I hope that it will also consider consumption, given the effects on elasticity of smuggling and cross-border shopping. From an industrial point of view, there are the questions of capacity and growth of the market, and of the effect 
 on consumption overall, but for certain products important health issues cannot be overlooked. All those factors go hand in hand, and our objective as policy makers or scrutineers must be to do our best to represent all our constituents and their interests. We sometimes have to consider competing factors to ensure that the best possible framework for a proper balance can be struck through the laws and secondary legislation that we consider and pass or do not pass. 
 I am glad that the hon. Member for Yeovil supports the call for publication of the model—that is right. I noted the Economic Secretary's response that the intention is to publish it, and we look forward to that. He used the expression ''shortly''. We would like the same sort of guidance that we were able to obtain some time back on whether the Chancellor's pronouncements on his five economic tests for the euro would be in the first half of this Parliament. We are now almost at that point.

Nicholas Winterton: Order. No, I will not have that. Can we please attend to the matter before us relating to excise duty on wine?

Stephen O'Brien: As I am sure you noticed, Sir Nicholas, my comments were by way of example and parallel. Therefore, as the parallel and precedent have been noted, I am sure that the Economic Secretary will want to define what he means by ''shortly''. I hope that it is no later than the summer recess.

John Healey: Shortly means shortly.

Stephen O'Brien: That was not the reassurance for which I was looking. Having put the question on the record, our expectation will be that the model will be published before the summer recess. Anything beyond that would stretch the meaning of the word shortly, however often it is repeated. On the basis of such assurances, we will not press the issue further.

David Wilshire: I hasten to say that I have not been put up to this, and I have not even consulted my colleagues on the Front Bench so they will be worried about what I am about to say. I want to make a plea from the heart, and on a serious point. Over a number of years, I have done my level best to produce English wine. It is not a declarable interest because no one in their right mind would ever buy it from me. No money is involved, but it has given me an insight into the English wine industry. Its small-scale production means that its overheads and its ability to compete in the marketplace are seriously undermined.
 I appreciate the difficulty of discriminating between one sort of alcoholic grape juice and another; I am well aware of that. However, if the Government, or any other Government, were looking for a means of import substitution to help the balance of payments, any way that could be found to assist and encourage the production of English wine would make a great deal of difference.

Ian Lucas: Does the wine to which the hon. Gentleman refers include Welsh wine?

David Wilshire: I am proud to be an Englishman. The Welsh can make their own case. I doubt that the Scots would want to—it is a bit too chilly up there. I am aware of Welsh wine. It is, of course, nothing like as
 good as English wine, but I will make a plea for that as well, if it will help. The point is a serious one. Anything that any Government can do to encourage small-scale production, through any financial relief or benefit, would be valuable for eccentrics such as myself in England, and it would be quite useful in a very small way for the British economy.

Michael Jack: The Minister might say a word or two about the current structure of the rates of duty per hectolitre, because I thought the tax was on alcohol. Why is it that the rate for wine or made-wine up to a strength of 15 per cent. is £158.69 but the addition of a dash of carbon dioxide, whether added naturally or by the process of fermentation, raises the duty rate to £220.54? It seems quite an expensive tax for a whiff of carbon dioxide, unless it is an anti-greenhouse gas measure, but I do not understand why there is such a large differential if we are taxing alcohol.

John Healey: We have made rapid progress. I welcome the information that the hon. Member for Spelthorne is a small wine producer in his own right. We have considered the suggestion that has been put to us of some sort of reduced rates for small wineries, similar to the scheme that we introduced for small breweries nine months ago.
 The European directive does not allow for us to set reduced rates for small wineries. In considering whether the UK should press for such an alteration in EU law, it is important to appreciate that despite the hon. Gentleman's best efforts, less than 1 per cent. of the wine consumed in the UK is produced in the UK. By comparison, 90 per cent. of the beer drunk in the UK is produced and manufactured here. Even were we able to amend EU law to consider such a measure, it would remain the case, under other European and world trade agreements, that we could not apply such a scheme to UK wine producers only. It is likely that much of the wine that might qualify under such a scheme would come from overseas. Our own small wineries would receive comparatively little benefit from such a move. 
 The right hon. Member for Fylde asked why there was an increase on still wine in line with inflation, but a freeze on sparkling wine.

Michael Jack: The question was not about the differential rate of increase, but the different rates of duty. If we are taxing alcohol, what is the explanation for having such a big difference between still and sparkling wine, when carbon dioxide is the only difference?

John Healey: For duty purposes, we treat sparkling wine such as champagne as more comparable to other alcoholic drinks than to still wine. There is, therefore, a different duty band, and the rates in the Bill to which the right hon. Gentleman points are different.
 I believe that I have given all the reassurances that I can to the hon. Member for Eddisbury. He has raised again points that he has raised in previous debates. I have explained that ''shortly'' means shortly. 
 Question put and agreed to. 
 Clause 3 ordered to stand part of the Bill.

Clause 6 - General betting duty and pool betting duty: relief for losses

Question proposed, That the clause stand part of the Bill.

John Healey: We turn now to general betting duty and pool betting duty. For about a year and a half now, we have had in place a reformed taxation system based on a new gross profits tax on betting. When we introduced those reforms, they were a radical and bold response to a difficult and rapidly changing competitive environment for our betting industry. They represented a fundamental shift in the approach to taxation in that sector.
 We have now completed a review of the reforms and I am happy to be able report that bookmakers, racing representatives, academics and industry observers widely hold them to have been a significant success. John Brown, chairman of William Hill, speaking at the British Horseracing Board annual general meeting last year, said that the implementation of the gross profits tax was 
''truly momentous. The significance of which cannot be over estimated. The new tax changes everything—the basis is now fairer, it is set at a sensible rate, and thus enables the bookmaker to stand the tax, without deductions from the punter. It represents forward thinking of the best possible sort''.
 I am quoting because I would hesitate to make this claim myself. Mr. Brown continued: 
''GPT will prove to be the single most important and influential development in betting and racing in 30 years.''
 I shall not embarrass my hon. Friends by citing other commentators who have made similar remarks—

Rob Marris: Go on.

John Healey: Since my hon. Friend presses me, an article published last year in The Economic Journal concluded:
''The switch to a gross profits tax is likely to lead to lower prices and enhanced consumer welfare . . . Further, the switch will . . . enhance the ability of UK betting firms to compete in an increasingly competitive environment.''
 Research has indeed confirmed that the gross profits tax is more efficient, fairer and more sustainable than the former regime.

Adam Price: Does the Economic Secretary have any quotations or positive assessments made by the betting industry since the Budget or the publication of the Finance Bill that he can share with the Committee?

John Healey: I am grateful to the hon. Gentleman. As it happens, I published a report yesterday containing the results of the review, so I can bring him and the Committee bang up to date by summarising one or two of its main findings.
 The report shows that since the reform, betting shops have experienced an increase in turnover of 82 per cent., almost half of which is attributable to the gross profits tax. It shows that 2,000 jobs have been created in the industry in the UK, and that internet and niche gambling sectors have had a significant 
 boost—the previous duty on stakes was a greater burden to such small operators because their margins were tighter, so that is a significant gain from the new system. The report also shows that the benefit of betting offshore or illegally, which was a serious problem for the industry, has been removed and that the level of illegal bookmaking has been significantly reduced. Finally, it shows that international business appears to be drawn to the UK. Although it is still too early to quantify, at least one large chain has reported a 10 per cent. increase in overseas sales since the introduction of the gross profits tax. 
 None the less, because the review threw up some questions from the industry for the Government, we are taking the opportunity it provides to make some further improvements to the new regime. We are doing that through this clause and the related clauses 7 and 8. At present, if a bookmaker makes a loss over an accounting period, although no duty is payable because no profit is made, that loss cannot be carried forward to the next accounting period to be offset against future profits. During the review, some smaller bookmakers and spread betting firms argued that, when they made a loss over an accounting period, the lack of a carry-forward facility meant that over a year they paid a higher effective rate of duty than 15 per cent. on their gross profits over the year as a whole. Having considered the merits of the bookmakers' argument, the Government have decided to refine the betting provisions to allow them to carry forward losses between accounting periods. For consistency, the arrangements also apply to pool betting operators. 
 I hope that the Committee will realise that the clause demonstrates the Government's commitment to consult, to listen to the industry, to respond when there is good evidence and a good case is put to them, and to refine the regime accordingly. On that basis, I commend the clause to the Committee.

Stephen O'Brien: I recognise that it must have been in order, because otherwise you would have brought it to the Economic Secretary's attention, Sir Nicholas, but clearly his introduction was to the whole group of clauses rather than specifically to clause 6.
 It was quite interesting that the Economic Secretary said that he was hesitating. I have never before noticed him hesitate to heap praise on himself and the Government. When he was called for an encore, he seemed to have one well prepared—a well rehearsed pat on his own back. Perhaps he is concerned with a new game of who can pass the bucket fastest, but that for him to decide. 
 The Economic Secretary is right to say that we are dealing with a rapidly changing industry. Whenever there is change, it is appropriate to consider during the fundamental redrawing the settlement between activities that are taking place and the proper approach to the element that will eventually benefit the public purse through revenue raising. I do not take issue with the approach on gross profits tax. 
 Although I do not want to stand in the way of progress and development in the industry, we should not lose sight of the effect that the tax regime and the way in which the industry is developing are having. 
 This is yet another example of arguments about services, opportunities and entertainments in localities and communities. We are deeply concerned on behalf of our constituents about community post offices and pharmacies, given the rate of closures and threatened closures; so it is with the pleasure of many of our constituents who like to have a bet and take part in gaming in other ways. 
 Although it would be wholly inappropriate to say that the matter should be the subject of a regulatory impact assessment, it is right to seek an assurance from the Economic Secretary that, when considering such matters, the Government genuinely acknowledge at all times the effect on communities and opportunities for people, as opposed to simply industrial, commercial and taxation issues, which may become clinical unless there is determination to hold on to the community aspect. The businesses in question are meant to serve and to entertain their customers, who are using their hard-earned, post-tax money. 
 On clause 6—perhaps this is unsurprising but it should be recorded none the less—it is nice to see the Government trying to get the law right at the second time of asking. The clause allows for losses that occur when winnings paid out by bookmakers exceed lost bets to be carried forward to offset gross profits in the following accounting period; that applies to both stake and pool betting and is in line with the general hopes and expectations of the interested parties. The clause will, of course, take effect from 1 September. It would be helpful if the Minister were to ensure through his reply that there is an absolute understanding about the following accounting period—it is obvious, but it would be helpful to have a clarification on the record. 
 One significant issue is not transparent: what is the position on carrying back losses? If there is relief for losses where winnings paid out by bookmakers exceed lost bets, what is the position on carrying back losses to prior accounting periods? Does the clause provide for that? It would be helpful to hear the Minister's observations. If the issue has not been considered or covered, it clearly should be and he should examine it. He may well have been advised that other accounting provisions cover it according to the entity, individual or business affected. 
 We considered many of the issues relating to the general application of GPT when we had our extremely important, although sadly unconsensual, debate on bingo in the Committee of the whole House. That debate has continued to resonate loudly within communities interested in bingo, and many of the issues relating to bookmakers have similar community bases. We should ensure that everything is done to facilitate the more modern approach that is appropriate under GPT, given how the whole business is developing. I look forward to the Minister's responses to those questions.

David Laws: We, too, broadly welcome the thrust of the Government's reforms in relation to GPT. I should like briefly to press the Minister on one issue, which, as the hon. Member for Eddisbury mentioned, came out of the debate on bingo. Without going off the topic—the right hon. Member for Fylde mentioned this earlier—I should like to discuss the consistency of
 Government taxation across certain areas. When we discussed bingo, we were disappointed that the Economic Secretary was unwilling to be open about the Treasury's approach to the taxation of different forms of gambling. Can he reassure us that the Treasury seeks neutrality between different forms of gaming, betting and gambling?
 Most economists assume that Treasury policy is based on neutrality. In other words, one assumes that the Treasury is aiming to get to a point at which there is no incentive—this touches on clause 7, but I do not want to anticipate that argument—to choose one form of betting or gaming over another given how the different forms are taxed. Earlier, the Economic Secretary seemed to indicate that there was no Government policy to align and neutralise the taxation of different forms of gambling, which was surprising and disappointing. Referring two days ago to the implications of offshore activity and the potential evasion of tax, he sensibly said that that was an area in which an argument could be made for not having a neutral tax structure. However, when pressed, he was not willing to indicate that there was a more general Government commitment to tax neutrality in respect of betting and gaming. 
 Can the Economic Secretary tell us more about the Government's intentions regarding tax neutrality between different forms of betting and gaming? Is it the Government's broad approach to seek to achieve neutrality? Finally, is he willing to publish an assessment of the tax burden on different forms of betting and gaming so that we can assess whether neutrality has been achieved?

John Healey: The hon. Member for Yeovil raises the same points that he raised earlier. I entirely respect your judgments and decisions, Sir Nicholas, but his comments go much wider than the clause with which we are dealing.
 When the hon. Gentleman put those points to me earlier, it was not that I was unwilling to explain the Government's position on tax neutrality but that my approach was different from his. I explained that the Government's approach to the reform of gambling and gaming taxation was a consistent one, not an equalising one. The reason for that is simple. We are dealing with an outdated, over-complex and over-burdensome taxation system for gambling and gaming. We have applied consistent principles to the reforms that we propose and those that we have already put in place: they are to remove some of the costs and complexity of compliance, to improve the prospects for growth in those industries and to produce a better deal for those who participate—the punters or players. 
 However, although the principles and approach are the same, the circumstances of the different gambling and gaming industries are different. When we were considering reform of the betting system—some of my hon. Friends are more expert on this than I am—we were faced with a UK industry that was increasingly moving offshore and on to the internet. We were faced with totally different circumstances when dealing with 
 the reform of bingo, on which the hon. Gentleman pressed me earlier. 
 To avoid doubt and at the risk of repeating myself, the approach that we take to reform and the principles underlying it are consistent, but it is not the Government's policy purpose to have an equalised approach across the gaming regimes.

David Laws: Will the Economic Secretary give way?

John Healey: No, I have dealt with the point. Let me turn to the question of the hon. Member for Eddisbury about how carry-forward losses would work. It might help if I first give an example and then deal with the carry-back question. If in a four-month period a bookmaker made a loss of £5,000 in one month and a profit of £10,000 in each of three months, he would pay tax of £4,500, or 18 per cent. of gross profits, if he could not carry forward the loss, rather than £3,750, or 15 per cent. of gross profits.
 The following accounting period is the one after the loss-making accounting period, so there is no carry-back provision in the clause. It is small bookmakers and financial spread betters who are at greatest risk from losses during accounting periods and who are most likely to benefit from the clause.

Stephen O'Brien: The Economic Secretary will realise that I raised the point not as a criticism, but as a matter for clarification. Professionals who advise various clients, large and small, raised it. The question has drawn an answer on the record, and I dare say that he is aware that it may be something on which many professionals rely when clarifying the position.

John Healey: I hope that the hon. Gentleman does not feel that I was trying to be anything other than helpful by giving him the clarification that he wants. It may be that professional advisers have put those questions to him. As I understand it, they were not raised by the industry during the work that we have done in framing the reform. Were we to look at a carry-back provision, it would add some complexity of compliance to the system, which would have to borne in mind.
 I welcome the hon. Gentleman's recognition of the success of the reforms to betting taxation that we have made. He is right to say that customers have to be central to that process. Through those reforms we have given customers and punters what he might call a fair deal. On that basis, I hope that the Committee will approve the clause. 
 Question put and agreed to. 
 Clause 6 ordered to stand part of the Bill.

Clause 7 - General betting duty: betting exchanges

George Howarth: I beg to move amendment No. 126, in
clause 7, page 5, line 4, after 'one person' insert '(''the bettor'')'.

Nicholas Winterton: With this it will be convenient to discuss the following:
 Amendment No. 127, in 
clause 7, page 5, line 4, after 'another person', insert '(''the bet-taker'')'.
 Amendment No. 128, in 
clause 7, page 5, line 5, after 'third person', insert '(''the operator'')'. 
 [R] Relevant registered interest declared.
 Amendment No. 129, in 
clause 7, page 5, line 8, leave out subsections (2) to (4) and insert— 
 '(2) For the purposes of sections 2 to 5B as modified by subsection (5)— 
 (a) the bet shall be treated as if it were made by the bettor with the operator and not with the bet-taker, and 
 (b) the operator shall be treated as a bookmaker in respect of the bet. 
 (3) But subsection (2) does not apply to a bet if— 
 (a) the bet-taker holds a bookmaker's permit, and 
 (b) the bet would not be an on-course bet if the operator were making the bet with the bet-taker as principal. 
 (4) Section 2 (Bookmakers: general bets) is modified as follows— 
 (a) in subsection (3) for ''15 per cent of the amount of his net stake receipts for that period.' substitute 'the aggregate for that period of the amounts of duty charged in respect of each individual bet-taker using facilities provided by him.''. 
 (b) after subsection (3) insert— 
 (4) For the purposes of subsection (3), the amount of duty in respect of each individual bet-taker in an accounting period shall be 15 per cent of the bet-taker's net stake receipts for that period. 
 (5) Where there is any doubt as to which of two persons is the bettor and which the bet-taker for the purposes of subsection (1)(a), whichever of the two was the first to use the facilities of the operator to offer the bet shall be treated as the bet-taker.'.
 Amendment No. 130, in 
clause 7, page 5, leave out line 26.

George Howarth: Let me take this opportunity to welcome you to the Chair, Sir Nicholas. I know from long experience of dealing with you that you are always fair and, as you rightly point out, firm. I will seek constantly to bring out your fair side rather than the firm.
 I begin by drawing the Committee's attention to the fact that I have a relevant registered interest in these matters. I am a remunerated adviser to William Hill and I do not want there to be any doubt about that relationship. I also have considerable constituency interest in that Bet Direct, which is one of the biggest telephone betting services, is based in Kirby in my constituency, and Ladbrokes has a call centre in the Aintree part of my constituency. Both of those concerns are responsible for a number of my constituent's jobs and are a significant part of the local economy. I am also very proud to have Aintree race course in my constituency. Since the arrangements in the clause have an impact on racing, that is important. Finally, I am pleased to draw attention to another interest: I am a part-owner, together with several hon. Friends, of a two-year-old bay filly known as Theatre Bell. I am not sure whether that is an interest, because so far all it has done has cost me money, but we live in hope. 
 Amendments Nos. 126, 127 and 128 are essentially definitional. They describe the relationship between 
 the various parts of betting exchanges. The crucial one is amendment No. 129, which proposes an alternative tax regime to that which the Treasury has proposed. I am grateful to my hon. Friend the Economic Secretary; we have discussed the matter previously and he wrote to me earlier this week. He said that he was hoping to create a level playing field through the arrangements, which is a perfectly proper way for the Treasury to proceed. I will comment on whether or not it is a level playing field shortly. 
 However, I should point out that my hon. Friend the Minister for Sport repeatedly makes the claim, which I think is justified, that we in this country have an industry of which we can be proud. Its integrity is not open to question, which is not true of other betting industries internationally. He has made a convincing case that the betting industry is part of a wider entertainment industry and an important part of the economy. My right hon. Friend the Chancellor recognised that when he introduced gross profits tax, which has been widely welcomed. As my hon. Friend the Economic Secretary pointed out, it has been a huge success in allowing the industry to grow and take its place as a worldwide centre of excellence for those who wish to bet. It has had the effect of bringing some offshore interests back onshore, thereby ensuring that they are properly regulated. 
 I am grateful and indebted to the Association of British Bookmakers for its assistance in preparing the amendments. I should draw attention to a letter that I have received. It was sent to me only yesterday, and I do not know whether other hon. Members have had copies of it. 
Adam Price indicated assent.

George Howarth: The hon. Member for East Carmarthen and Dinefwr indicates that he has done so. The letter is from the British Horseracing Board and is signed by its secretary-general, Mr. Tristram Ricketts, who is well known to many Committee members. The fourth paragraph of page 1 says:
''While betting exchanges are, in principle, a consumer-friendly addition to the traditional betting scene, it is important that they operate on a level playing field with other betting facilities to minimise the scope for market distortions and maximise the opportunity for fair and open competition. BHB is aware of, and supports, the view of the betting industry generally that such a level playing field is currently compromised by the present taxation arrangements for betting exchanges.''
 The penultimate paragraph says: 
''BHB shares the disappointment and concern of bookmakers that the Government did not respond positively to these proposals and proposes instead to change the basis of the taxation of betting exchanges in a manner which does not fulfil the key objective of creating a level fiscal playing field. Such a level playing field is a prerequisite of fair competition, the absence of which is proving deeply damaging to the revenues of the Racing Industry, with the implications that may have for employment and investment, as well as to bookmakers. We therefore wish you every success in at least securing a commitment from Government to reconsider the matter as a matter of urgency before further damage is done.''
 It might be for the convenience of the Committee if I run through the implications of all that. 
 I know that betting exchanges are a relatively new concept to some members of the Committee, who perhaps take a less close interest in such matters. They act as intermediaries between the layers of bets and 
 punters. The majority of their customers do not hold bookmakers' permits, and a significant number are located outside the UK. There is nothing objectionable about betting exchanges, as Tristram Ricketts makes clear. They provide another opportunity for punters to bet in an entirely different way and employ modern technology to facilitate that. However, the problem is that the proposals as set out in the Bill do not, as my hon. Friend the Economic Secretary said in his letter to me, create a level playing field. 
 The Budget proposals in the Bill require exchanges to pay 15 per cent. gross profits tax only on commission income. That means that those who use the exchanges to lay bets and who do not hold bookmakers' permits will not pay tax, but only a small commission on winnings. Let me illustrate that. A £1,000 losing bet with a bookmaker generates £150 in duty, while the layer on the exchange pays nothing. In terms of any gross win generated by the betting exchanges, the Treasury will be totally dependent on the commission level of the exchange. As a result, the same £1,000 losing bet made through an exchange would generate a maximum of £7.50—or less if the commission rate is less than 5 per cent. In fact, the average commission rate is thought to be about 3 per cent. 
 That does not represent a level playing field for either the bookmaker or the Treasury. The current proposal, based on betting exchange commission, is flawed, as it gives an unfair advantage to layers on betting exchanges, some of whom may not even reside in this country. It must be appreciated that betting exchanges compete directly with licensed bookmakers. There are not many opportunities to place bets. One can go through a betting exchange or a bookmaker. Some of us might have a friendly wager that has nothing to do with the Chancellor or anybody else, but that is becoming less and less usual. 
 The betting exchanges regularly advertise in the Racing Post, advising punters to ''join the revolution''. Matching £4 billion worth of bets annually is significant business, and as they claim to have 500,000 matched bets a day, it really is big business. On current proposals, that would produce about £9 million in duty. It is estimated that, if the same volume of business passed through a traditional bookmaker, the duty generated would be about £35 million, so the proposals would involve a significant loss to the Exchequer. 
 The main marketing approach of betting exchanges is that they offer the punter better value. That is true, but they can do so only because they are not paying their fair share of the costs. The amendment would not penalise betting exchanges, but ensure that the layers operate under the same tax regime as UK bookmakers, with whom betting exchanges clearly compete. 
 I shall not say a great deal more—

Michael Jack: I have been following the hon. Gentleman's argument closely. I am not an expert in this area, so can he tell me whether, in the traditional sense of placing a bet, one can place bets through the
 internet offshore of the United Kingdom, where the tax regime is more beneficial, notwithstanding the change in tax arrangements on betting? That would seemingly put offshore betting on a par with the exchanges that the hon. Gentleman mentions in the amendments.

George Howarth: That possibility clearly exists, and the right hon. Gentleman is right to point to it. I have no doubt that, if this provision goes unchecked, that will happen. It is not simply a matter of competition. I referred in my opening remarks to the integrity of the industry. The reason why there is so much integrity and trust in the industry is that it is well regulated. If the developments that the right hon. Gentleman describes take place, people will not know how the people they are betting with are operating or what their level of integrity is.
 Betting exchanges are not unique to the United Kingdom: because of its nature, the technology becomes worldwide very quickly. We are all aware of that from other contexts. I understand that Australia and Hong Kong are talking about banning betting exchanges altogether, and there have certainly been complaints from the French racing authorities about their activities in France. I am not proposing anything as draconian as banning them because, in the right context, they provide an alternative opportunity for punters and I would not want that to be taken away. The UK betting industry is fully prepared to compete with betting exchanges, provided the competition is fair. My amendments would create a level playing field in contrast with the arrangements in the Bill, which will not.

Adam Price: From his expert knowledge and for my understanding, will the hon. Gentleman elaborate briefly on the implications for horse racing in this country of an expansion in betting exchanges' market share vis-à-vis the licensed bookmaking trade?

George Howarth: At the moment, British horse racing benefits through the levy, all of which is collected from bookmakers. There is a debate about whether that should be a statutory levy and the Government are thinking about replacing the levy with a more commercial arrangement. That may or may not happen. The basic principle is that the British Horseracing Board owns fixture lists, although the Office of Fair Trading is inquiring into the ownership of those lists. At the moment, the British Horseracing Board benefits from being able to sell the fixture lists and the money that they receive from bookmakers through that arrangement helps to support racing in this country. Betting exchanges are not involved in that and because they do not participate in the levy, racing does not benefit from it in any way.
 I am conscious that I have spoken at some length and I do not want to test the patience of you, Sir Nicholas, or the Committee any further. I shall listen carefully to the response of my hon. Friend the Economic Secretary because the matter is important for the betting industry and for racing.

Stephen O'Brien: I have read the amendments and received representations from the Association of British Bookmakers Ltd., which the hon. Gentleman so ably explained. I have considered them carefully and one issue that he is relying on is open to question. He will detect from the tone of my comments that we are not minded to support him today. However, he has raised some valid issues, which, in the circumstances of this rapidly changing market, must be addressed. It is simply not good enough to ignore them.
 The hon. Gentleman based much of his argument on the issue of a level playing field and I understand where he is coming from and why. In terms of a level playing field, one tends to think of rights and responsibilities but also of unfair competition. It is on that latter limb of the level playing field argument that he must be basing his case. 
 There is a challenge to that because we are discussing a market of choice for customers and, as with all marketplaces, whether the product is available and affordable. With betting, affordability is an interesting notion for the normal marketplace test, but it is entertainment, so we can put to one side the issue of whether it goes beyond entertainment to compulsion. However, that is not what is behind the hon. Gentleman's amendments and, because it is that type of marketplace, we as a Parliament and a legislature must be very cautious when considering passing laws, as suggested in the amendments, that would defy the way in which the market is moving. However, the hon. Gentleman has raised valid concerns. If he is, through the amendments, providing a serious and well-thought-through marker of what needs to be addressed, that is fair and helpful to the Committee, to the House and to those beyond. I in no way criticise that, but I am not in a position to offer the official Opposition's support for the amendments today. 
 I take seriously the concerns that the hon. Gentleman raised in regard to the British Horseracing Board. I am a little more familiar with that, although I do not partake in the ownership of a leg or even a forelock. I have had representations on such matters on various occasions, not least because I have a constituent who has been a member of that board and who has ensured that I am aware of its views. 
 We have to recognise—as did the hon. Gentleman—that betting exchanges are a very successful new phenomenon. Although it is absolutely right for the margin earned by an exchange to be taxable, we have to be extraordinarily careful in addressing the issue of how to make that equivalent to what happens with other forms of betting and gaming under the GPT regime. The real complaint from the Association of British Bookmakers is, as I understand it, that there is a chance that it will be forced to compete against what is in effect an unregulated sector of the market. 
 There is always a problem with the word ''regulation''. My party and I abhor red tape. We abhor bureaucracy and the overwhelming culture among legislators and the civil service—with the greatest of respect to them—that they all the time 
 must find something to do, rather than something to undo. We should all always assume that regulation is the worst of all options. However, in this case, I think that it is proper to look at the complex issues that arise, although perhaps not at law. We are dealing with a type of business that is not only cross-border but even ethereal, or ether-driven. That challenges our normal notions of jurisdiction. 
 I am conscious that one could go down a long cul-de-sac on that point—it would certainly be a cul-de-sac where my personal knowledge of the conflicts of laws and rudimentary legal education are concerned—but there is a major issue here. This is the sort of real-life example that can impact on what are often academic and learned issues, upon which it would be wholly presumptuous of me to give an opinion.

Adam Price: I am listening with great interest to the points that the hon. Gentleman is making, although they seem somewhat inconsistent with the arguments on tax neutrality that we will soon be hearing. I hope that his comments have nothing to do with the fact that one of the main owners of a successful betting exchange in the UK is a major funder of the Tory party.

Stephen O'Brien: As I have said, this is not my area of expertise but I am glad to note that we are developing policies in this field—not least on the clause—that are gaining such widespread support that some people feel compelled to ensure that we have the best possible opportunity to prevail at the next general election.

George Osborne: I should correct the hon. Member for East Carmarthen and Dinefwr. The declared donor to whom he referred is an owner of a spread betting company. That is different from a betting exchange. The clause refers explicitly to betting exchanges, not to spread betting firms.

Stephen O'Brien: I am very grateful to my hon. Friend and neighbouring Member of Parliament up in Cheshire. I am glad to see that, as always, Cheshire contains a multiplicity of expertise on which I can draw. While recognising that helpful distinction, I accept the serious underlying point made by the hon. Member for East Carmarthen and Dinefwr.
 As we examine this difficult area, I want to make sure that the counter-intuitivity of the matter is understood. On tax neutrality and the level playing field, the challenge is to capture betting exchanges, which exist in a different marketplace and have almost ethereal geographic locations. I do not underestimate the challenge to the Treasury in raising revenue. We should not always seek to step in rather than stepping aside to let markets find their own levels. Because I veer more towards the latter approach than the former, as a matter of principle I would prefer to hesitate rather than rush into such a rapidly developing area. 
 The amendment moved by the hon. Member for Knowsley, North and Sefton, East (Mr. Howarth) is underpinned by an important point. Unlicensed bookmakers should be tackled through regulation to protect the consumer. It is appropriate to examine the 
 issue if we have consumer protection in mind. It is neither appropriate nor right to tax the exchange as though it generates the income from the bet because all the exchange actually earns is a margin. When people bandy the numbers from exchanges around the City, they are often discussing very small margins because where volume is all, turnover can be wholly disproportionate to the true element of a business. Although those points are arguable; they provide an analysis of what is taking place. 
 On that basis, we cannot support the amendment. We urge the Minister to examine the question of unlicensed bookmakers and the appropriateness of improved regulation to address some of the points behind the hon. Gentleman's concerns.

David Laws: I warmly congratulate the hon. Member for Knowsley, North and Sefton, East on raising the issue. He obviously shares some of my concerns, which I expressed when we debated the previous clause, about neutrality between different forms of betting and gaming duty. At the beginning of his contribution, I thought that I heard him say that he had secured an undertaking from the Economic Secretary that there should be a level playing field.

George Howarth: My hon. Friend the Economic Secretary is more than able to explain himself. I referred to a recent letter from him in which he used the phrase ''level playing field''.

David Laws: I am grateful to the hon. Gentleman for that clarification, which moves us forward. I also congratulate him on making more progress with the Economic Secretary in his letter than I have managed to make in a number of exchanges in Committee. Given that the Economic Secretary has given an undertaking to the hon. Gentleman that he is in favour of a level playing field, perhaps he can explain how it would differ from the concept of tax neutrality, which I was talking about earlier. Is a level playing field the same as tax neutrality? He has said to me on a couple of occasions that he is not in favour of tax neutrality, but he has given an undertaking to the hon. Gentleman that he is in favour of a level playing field. It would be useful to know the difference between the two.
 My suspicion, which has only been underpinned and confirmed by the Economic Secretary's reticence in debating the issue, is that although the Government have tried to move policy in the right direction, they will not ensure consistency between the different areas of taxation and that they hope to keep that aspect of policy making in the dark. He smiles, but he has been less than forthcoming in his answers. Indeed, he refused to give way to clarify various points on the last clause. If he is committed to a level playing field, can he tell us what it is, and will he have the courage and the openness to engage in debate and to publish his assessment of tax neutrality or a level playing field in the different areas of betting and gaming? If he has decided that in some areas the level playing field requires the taxation of particular products to be unequal, because he is trying to deal with issues such as offshore gambling and the potential for evasion of tax revenues if they are set at the same level, can he acknowledge that explicitly? 
 If we do not press the Treasury to be open about the assumptions that it is making and whether there is actually tax neutrality, the danger is that we may end up—as we have done, for example, on alcohol—with taxation that is not consistent or coherent across a range of products. I hope that the Economic Secretary can deal with those concerns when he sums up. If he cannot address the points that I have put to him, I hope that he will be more open and helpful to his hon. Friend.

Rob Marris: Clause 7 and amendment No. 129 both appear to me, and I am not well versed in such matters, to deal with the relatively new phenomenon of betting exchanges, and closing tax loopholes—perfectly legitimate loopholes, I hasten to add—in the way betting exchanges operate that give them an undue tax advantage, as my hon. Friend the Member for Knowsley, North and Sefton, East argued. If that is the case, I seek the Economic Secretary's reassurance because Europe's only all-weather floodlit racecourse, Dunstall Park, is in my constituency and on-course betting takes place there. I have a constituency interest in making sure that undue tax advantage is not conferred on betting exchanges.

George Osborne: As this is the first time that I have spoken in the Committee, I begin by paying tribute to you, Sir Nicholas. You are my constituency neighbour—Cheshire is well represented in the Committee—and you have been a good colleague to me and, I venture to say, a friend. Now that I have done my sucking up, I could sit down, having achieved a principal objective.
 I intend to speak against the amendment moved by the hon. Member for Knowsley, North and Sefton, East. I have come to regard him as a friend, too, in the two years that I have been here. We served together on the Public Accounts Committee and enjoyed a very good day together at the Grand National in his constituency, so it pains me to speak against him. 
 I declare an interest of sorts. It is not a pecuniary interest, but members of my extended family—my uncle, for example—run casinos, gaming businesses and so on. Not for the first time, I am going to disappoint my family and speak against what is in their interests, by speaking for the betting exchanges. They are an enormously innovative and positive force in the gaming industry. The hon. Gentleman gave us some idea of the scale of what goes on. Betfair, the largest company, handles about 500,000 bets a day, and processes about £4 billion worth of transactions, but it is not a bookmaker in the traditional sense; it is a market. It links together those who want to place bets and those who want to lay bets. It is different in concept from a traditional bookmaker of the kind that one might find on the rails at Aintree or anywhere else. 
 The effect of amendment No. 129, which is the meat of the group, would be to create what is known in the business as an aggregated profitable layers tax. That was actively considered by the Treasury and Customs and Excise as part of the consultation.

George Howarth: I am grateful to the hon. Gentleman for his warm remarks about me. He makes a distinction between betting exchanges linking punter to punter and regular bookmakers. Is he aware that some of the rails bookies are linked by computer to betting exchanges and are using that facility to hedge their bets? It is quite possible that punters, because they do not know with whom they are dealing, are betting with bookmakers who are not regulated for that kind of trade.

George Osborne: The hon. Gentleman makes an important point, which is at the heart of the argument. I will come to that because there are serious problems with the solution that he proposes. As he suggested, his amendment would tax betting exchanges as if every single layer on the exchange was acting as a bookmaker. I have doubts about his amendment.
 As the Department for Culture, Media and Sport recognised in its position paper on regulation for betting exchanges, it is not reasonable to treat most betting exchange users any differently from other gamblers. The fact that some gamblers like to bet on an outcome that does not happen, as well as an outcome that does happen, does not make them bookmakers. Indeed, spread betting firms of the kind that we were talking about earlier have offered that for many years. Traditional bookmakers have begun to do it more recently. Betting exchanges and spread betting companies have done an enormous amount to gee up—to use a pun—the traditional bookmaking industry and have been a force for good in the gaming industry in getting people to improve their act.

George Howarth: Does the hon. Gentleman accept that, although bookmakers are regulated and spread betting organisations are regulated by the stock exchange, betting exchanges are effectively unregulated?

George Osborne: The companies are regulated in the sense that they will be registered for tax and have to deal with the Treasury. It is worth pointing out that the clause will considerably increase the tax that they pay. That is something for which the companies have volunteered, in that they have supported the Government's proposal. Under the current arrangements, they pay about 5 or 6 per cent. of the commissions that they collect in tax. Under the Government's proposal, which has been accepted by the betting exchange industry, the companies will pay 15 per cent. of the commissions that they levy. That is quite a substantial increase.
 I have other problems with the amendment. The liability is exorbitant. It is estimated that around 40 per cent. of Betfair's commission revenue would be swallowed up by betting duty. That 40 per cent. compares with 6 per cent. under the current arrangements and 15 per cent. under the arrangements proposed by the Government. Some of Betfair's smaller competitors, which are trying to enter the market, would have up to 80 per cent. of their revenue swallowed up in tax. That would obviously be an extremely exorbitant tax liability. 
 Another criticism is that things would be horrendously volatile. Liability would swing hugely—far more so even than under the current arrangements. Indeed, one of the central arguments deployed by the Government in introducing the legislation is that the existing arrangements are volatile. The volatility is referred to in the explanatory notes. The hon. Gentleman's measure would make things even more volatile. The measure is anti-competitive because new entrants to the market and those trying to charge lower commission rates would suffer enormously. 
 The proposal is also open to manipulation. It would be extremely easy for users to manipulate their liabilities up and down. A clever, or professional, layer could quite easily get round the provision by manipulating the way in which they laid their bets. 
 All those factors would mean that exchanges would have to pass on all or some of the charge to users to remain in business and that would be unfair on punters. It would in fact tax punters for using Betfair. For example, Sir Nicholas, if you were to put a bet on at William Hill that Manchester United might not win the premiership—

Rob Marris: How about a bet on the Conservative party not winning the next election?

George Osborne: So that I am entirely neutral and gather support across the Committee, let us say if you were to put a bet on at William Hill that the Liberal Democrats would not win the next election, Sir Nicholas, you would not pay the same tax as you would if you placed the same bet at Betfair. Under the arrangements proposed by the hon. Member for Knowsley, North and Sefton, East, you would be treated as a bookmaker in laying a negative bet. That would be unfair and would undermine the major attraction of the betting exchanges, which is that one can trade in and out of positions. Both Customs and Excise and the Department for Culture, Media and Sport say that they want to encourage new, innovative and consumer-friendly products: betting exchanges are exactly that. As the hon. Member for Knowsley, North and Sefton, East said, the Bill would drive more rather than fewer punters to offshore alternatives. I mentioned manipulation. It would be easy to manipulate one's liability to zero if one set up two accounts and deliberately lost one's bets in each account.
 Betting exchanges are new and innovative. In recent years Governments of both political colours have tried to catch up with changes in the betting industry, a point made persuasively by my hon. Friend the Member for Eddisbury. It would be a mistake to try to tax and regulate that innovation out of the market. As we found with traditional bookmakers, it would simply drive them offshore to places such as Gibraltar. Betting exchanges have been good, but supporting the Government's proposal will considerably increase the tax that they will pay. Exchanges create a true level playing field, where all betting operators are taxed and regulated in the same way as are all punters, wherever they place their bets.

Michael Jack: When I first looked at this matter, it seemed that one area of betting was getting away with it and another was not. However, on examining the substantive clause to which the amendment refers, I find that that is not the case. A change is proposed to impose higher taxation on the exchanges than at present. I want to follow up, with a question to the Economic Secretary, a point that the hon. Member for Yeovil made about tax equivalence.
 The question whether exchanges are being fairly or unfairly treated turns on the nature of what is available to be taxed. With taxation, one must crystallise out a certain amount of money at a certain time and then, if one decides that it is legitimate to tax it, determine the rate of taxation. In the case of the onshore betting arrangements in the United Kingdom, it is determined that the point of taxation is the crystallisation out of the gross profit of the enterprise. In the case of the exchange, what crystallises out is an amount of money known as the commission income. Does the Economic Secretary believe that the commission income is the same as the gross profit, or are they different? He could argue that the gross profit is influenced in the case of onshore betting by the nature of the book that is determined. In other words, one can decide what one's gross profit is by manipulating the odds at which one accepts bets. That determines the amount of money that falls to be taxed. 
 In the case of the exchange, if I have understood that operation correctly, the commission income comes simply as a result of the amount of business transacted through the exchange. In other words, the way in which it works is hardly influenced by the providers of the exchange.

Stephen O'Brien: My right hon. Friend makes an extremely interesting analysis of the position. It is fair to say that, in relation to the betting exchange, the income is an introductory commission from putting two parties together, but, above all, it is volume driven, whereas the other one naturally has to be price driven, or the book would simply not perform.

Michael Jack: My hon. Friend crystallises my argument into an elegant sentence. If the descriptions of sums of money to which taxation rates are applied differ, conventional betting may blow the whistle and call foul, but we are not comparing like with like. If the Economic Secretary sustains that argument, high as is my regard for the hon. Member for Knowsley, North and Sefton, East, the Government are right to do what they can to have an equivalence of taxation, but it may be impossible to have exactly the same tax regime, because we are not taxing apples and apples.

John Healey: I welcome the fact that my hon. Friend the Member for Knowsley, North and Sefton, East tabled the amendments to enable us to have such a well-informed and genuine debate. For the benefit of the Committee, it may help if I explain that betting exchanges facilitate betting between private individuals. Such companies provide a web-based service where two customers can come together and take bets against each other. One set of customers, known as the layers, offers odds; the other set, known as the backers, takes the odds and puts down a stake.
 The general practice is for the exchange to make its money by charging commission on the winnings.
 At present, as the hon. Member for Tatton said, the exchanges pay duty based on the aggregated gross profits of the layers. The amendments would prevent our achieving the purpose of the clause, which will move betting exchanges on to a level playing field with bookmakers, who are, in my hon. Friend's words, competing directly. 
 To answer the questions of the hon. Member for Yeovil and the right hon. Member for Fylde, from June, betting exchanges will pay 15 per cent. tax on the total commission that they receive, assuming that the amendments are not agreed to. There will be a fairer and simpler relationship between tax and profit. As the hon. Member for Tatton pointed out, the measure has been welcomed by the betting exchanges. 
 We considered several options for changing our approach to the taxation of betting exchanges, including basing the assessment on the winnings achieved by one set of the customers—that is, the layers—which is what the amendments of my hon. Friend the Member for Knowsley, North and Sefton, East seek to do. However, we came to the view that such a system would increase rather than decrease the problems highlighted by our review of the reforms that we made earlier. In particular, under the business model that is used by exchange operators, duty liability would be highly volatile and there would be a significant and perhaps increased risk that liability could exceed the revenue generated. 
 I understand why mainstream bookmakers wanted us to adopt a different approach to taxing exchanges, but we have tried to achieve a fair outcome that levels the playing field for those who are in direct competition. We believe that that is achieved by focusing on the gross profits of betting exchanges—their commission—and the gross profits generated by those using facilities by way of business, which are already catered for under existing provisions. 
 Therefore, just like bookies, betting exchanges will now pay tax of 15 per cent. on their gross profits. 
 The amendment would keep exchanges in the current situation, in which their tax liability is determined by the gross profits of those who lay bets. My hon. Friend made a particular point of that, so perhaps I should emphasise that the vast majority of exchange customers are recreational users, according to the industry's data. We do not want to tax those private individuals. Indeed, the betting tax reforms that we have put in place move the duty charge away from customers and on to businesses. If we were to tax all layers, we would have to deal with minute tax returns from thousands of individuals. 
 I welcomed my hon. Friend's concern about the possibility of a significant loss for the Exchequer. The industry's data suggest that the additional revenue that would be raised would be minimal—some £5 million—even if we were to tax all winning laying customers on betting exchanges. 
 My hon. Friend and the hon. Member for Eddisbury asked about regulation. Although I am fortunate as Economic Secretary to have the best brief in Government among junior Ministers, my responsibilities do not actually range as far as the social regulation of exchanges. Of course, all UK exchanges hold UK bookmaking permits, and my hon. Friends in the Department for Culture, Media and Sport are well aware of concerns about regulation.

George Howarth: My hon. Friend the Economic Secretary said a few moments ago that the information that had been made available to him showed that the vast majority of transactions were, in effect, punter to punter. He did not use that phrase, but that was the import of what he said. Would that equally be true of the amount of money involved in each transaction?
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.